The perfectly competitive firm's short-run shutdown price equals

Question

Quizplus · Accepted Answer

The firm will shut down if the price falls below the minimum of the average variable cost. This is because in the short run, the fixed costs cannot be changed, and therefore the firm will still have to cover its fixed costs even if it stops producing. However, if the price is below the minimum of the average variable cost, then continuing to produce will result in losses that cannot even cover the variable costs, let alone the fixed costs. Therefore, E is the correct choice.

The Perfectly Competitive Firm's Short-Run Shutdown Price Equals